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Top 5 ways in which investors could manage money in times of rising inflation

Inflation is skyrocketing! As per recent data released by the government, India recorded the highest inflation in 8 years. As of April 2022, the CPI inflation rate has gone up to 7.79 per cent. This means prices have never been higher over the last 8 years than they are now.

We slowly and steadily saw inflation creep into our households, and one fine day, we thought and wondered, “How has my spending increased so much?”

First, it’s important to understand what inflation is.

Inflation is simply a rise in the prices of goods and services. It is increasing day by day, and so is your cost of living. As per the government data, it’s 7.79 per cent which is calculated considering the basic needs of an individual.

However, if you’re someone who spends money on dining out, buying flight tickets, sending your kids to pursue education at private institutions, or dreams of having a luxury wedding, the inflation for you might be over 10 per cent because all of this falls into the luxury category.

Therefore, your savings should grow more than that to maintain the current lifestyle.

If we study what has caused inflation to surge, there are many factors to consider, including excess liquidity in the market, COVID-19 restrictions, rising fuel prices, the Russia-Ukraine war, and an overall mismatch of supply and demand in the market.

As a result, the current status and the way it is going to continue in the future is something that all of us should know and equip ourselves to deal with it better.

So, here are certain ways to manage your money amid rising inflation:

1. Cut down on unnecessary expenses:
Make a list of everything you spend on and then differentiate between your needs and wants. Needs are things you use regularly, such as food, groceries, and other necessities for your survival and basic existence. Wants are things you buy for your comfort or luxury – such as going out to dine, home delivery, going to movie theatres, and the list goes on. Now, your task is to go through all of this to understand what fits your needs and wants. In times of rising inflation, this exercise will help you identify ways to save and manage your money efficiently.

2. Get smart with your budgeting:
It’s time to revaluate your spending plan and get back to the budgeting basics. According to the Women & Money Power survey conducted by LXME, 73 per cent were saving less than 20 per cent of their income. The 50:30:20 rule ideally allocates 50 per cent of your income to needs, 30 per cent to wants, and 20 per cent to savings and investments. Therefore, following this rule will help you keep track of your expenses and maintain a budget. One pro-tip here is that as you get your income, save at least 20 per cent of it first and then spend. It helps in instilling the habit of saving and a disciplined approach to money management.

3. Look at each expense item and seek better deals or offers:
Since inflation is squeezing your wallet, it’s important that you hunt for better deals and offers when making a purchase. All these, including rewards and cashback, are some ways that aid in saving that extra rupee.

4. Maintain an emergency fund:
As inflation rises, you may need to set aside additional funds to manage your expenses. Then you may not want to take up any new loans as the borrowing costs are high. Or even dip into your long-term investments, since that would derail you from your financial goals. Therefore, it’s important to have an emergency fund that is at least 6 months of your expenses and be quickly and easily available when an emergency strikes.

5. Invest in equities for your long-term goals:
According to the Women and Money Power Report 2022, 49 per cent of women are investing in traditional instruments. Given the current scenario of rising inflation and regardless of the fact that interest on interest-linked instruments has risen due to the rise in repo rates, they will not be able to generate long-term returns that outperform inflation. If you have long-term goals, make equity your friend, as it is a value-creating asset class. You must incorporate it into your portfolio to get inflation-beating returns and create wealth. To begin with, mutual funds are the easiest way to get exposure to equities. Finally, before making any investment, it’s important to identify your goals, risk appetite, and time period of investing and then make a decision for yourself.

Let’s build better money habits and make smart moves so that you can deal with inflation and manage your money efficiently.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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